BBC 4 Episode of "Analysis" on Austrian Economics

Steven Horwitz

While I was in London earlier this month, I was interviewed by the BBC for a program on Austrian Economics that aired today. You can find the audio here. Other names you'll recognize include Larry White, Bob Higgs, and rappin' John Papola.

My comment is exactly along the lines of Nick's. The presentation was great, but left the impression that the Austrian tradition implies no positive prescriptions. I think Hayek himself would have disagreed with that characterization. Hayek described himself as following in the footsteps of Edmund Burke and Lord Acton. He also made plain that the idea of complete "hands off" laissez faire had delt a great deal of harm to classical liberalism.

I think that James Buchanan would agree.

There are correct institutional structures that must be in place before the market will work as it should, just as a simple set of traffic laws allow the freeway to function properly. People get the meaning of this confused. Some think that free-market capitalism implies chaos and mob rule, and that it's proponents sternly hold to the rigid doctrine that it is a total sink or swim proposition for everyone in society. This incorrect view should be dispelled wherever it crops up.

"There are correct institutional structures that must be in place before the market will work as it should,"

Nothing operates outside the market nexus like some God or superhuman institution. The "correct" institutional structures are either the product of this market process, or they are not and are compelled on us by force as in the case of government. But in either case, the market must exist _before_.

"The Keynesian challenge that all Austrian economics can say in a crisis is "do nothing" is something that I still struggle with."

I thought this part of the Austrian school was poorly represented, the charge that they prescribe nothing.

Firstly. It was government intervention after 1929, and legislation in place before 1929, that made the Great Depression Great. If the Austrian medicine had of been taken it would not have been Great. For instance...

1929. Hoover signed legislation creating the interventionist Federal Farm Board, who had a minimum wage, when wheat prices collapsed post 1929, these guys were ploughing up every third row of wheat and cotton to keep prices up, resulting in a collapse in demand for US wheat and cotton, just to keep high wages, even though prices were falling. Australia and Argentina grew their wheat exports at a cheaper price than the US. This destroyed agriculture in the US. People were hungry and you have a government that up rooted crops, and burnt cotton.

Of the top of my head other harmful government interventions without going into detail

1. Creation of Federal reserve in 1913.

2. Fractional Reserve Banking

3. The unbridled run up in credit between 1924-1929. The Keynesians always focus post 1929, the Austrians study the cause.

4.Emergency Tariff act of 1921

5. Smoot-Hawley June 1930, so much for Hoover being laissez-faire. Led to collapse in global trade and unemployment soared after it. After Smoot-Hawley us agricultural exports had dropped by circa 80% by 1932.

6.Wage laws during the 1920's, pushed for by Hoover even before he became president.

7.Roosevelts national recovery Act

8.Roosevelt made it illegal to won gold, confiscated honest money and then devalued the USD. I mean thats interventionism in the extreme